The Patna High Court ruled that failure to register for service tax alone cannot be considered evidence of fraud or willful tax evasion to justify applying the extended five-year limitation period under Section 73(1) of the Finance Act.
The Court set aside a demand-cum-show cause notice and an Order issued by the Assistant Commissioner, CGST, which sought service tax, interest, and penalties from a government contractor (Petitioner). The Petitioner had contested the tax demand linked to royalty deductions from his payments for the 2016-17 financial year.
The Division Bench of Justice Rajeev Ranjan Prasad and Justice Sourendra Pandey explained, “This Court finds much force in the submission of the petitioner that had the Government Department issued invoice as required under Rule 4A of the Service Tax Rules, 1994, he would have come to know the requirement of payment of service tax and the rate at which it was required to be paid. The relevant Rule which we have taken note of hereinabove is mandatory as it casts a duty upon every person liable for paying the service tax to make an application to the concerned Superintendent of Central Excise in Form ST-1 for registration within the 30 days from the date in which the service tax under Section 66B of the Finance Act is levied. Proviso to Sub-Rule (1) of Rule 4 further says that where a person commences the business of providing a taxable service after such service has been levied, he shall make an application for registration within a period of thirty days from the date of such commencement.”
Section 73(1) sets a limitation period of thirty months (earlier eighteen months) to issue a notice for service tax recovery. However, the proviso allows an extended five-year period if non-payment is due to fraud, collusion, willful misstatement, suppression of facts, or intentional violation of service tax laws.
The Court held that simply not registering for service tax does not imply fraud or willful suppression of tax liability. Under Rule 4A, service providers must issue an invoice, bill, or challan with specific details, but in this case, the petitioner did not issue any such document, which was noted by the Court.
“In the opinion of this Court, it is not one of those cases in which the petitioner may be said to have committed a fraud or acted with an intention to evade the service tax. The show cause (Annexure ‘P/2’) is barred by limitation. The benefit of extended period of limitation would not be available to the respondent no. 2. Hence, the SCN as contained in Annexure ‘P/2’ and the consequent order confirming the demand vide Annexure ‘P/4’ to the writ application are quashed.” the Bench added.
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